Recent Changes to the FAFSA and What They Mean for You

In late 2020 and 2021, Congress passed laws known together as the FAFSA Simplification Act, which are now in effect for financial aid applications for the 2024-25 school year.  While Congress certainly achieved its goal of simplifying the application process, the new law also dictates a number of other changes to the FAFSA aid calculation, which will impact who is eligible for aid, how much they are eligible for, and what strategies might help applicants maximize financial aid during the college years.

Unlike the past few years in which the FAFSA application became available on October 1, the U.S. Department of Education promised that the new application would be available in December and then barely met its own deadline, releasing the new FAFSA with a “soft launch” on December 30th.  Within a week, the online FAFSA form was available 24/7, and several million students have completed it since then.  Students (and parents) can expect significant delays though in receiving financial aid packages from prospective colleges because of the lag in schools receiving financial aid data.  Due to major processing delays (in addition to the later release date for the form), the Department of Education will not even begin sending students’ FAFSA data to colleges until mid-March.  In future years, the start of FAFSA availability will revert to October 1st.

Fortunately, the new FAFSA should require much less time and effort than in previous years.  The new application has less than 50 questions (compared to over 100 on the old form), much of the required tax and income information can (actually, must) be imported directly from the IRS, and students can list up to 20 colleges to receive the information from their online FAFSA form (as compared to only 10 under the old rules).  Note, however, that to start the process in motion, the student as well as his/her spouse, parents, and/or step-parents, will need to request an “FSA ID,” unique credentials to log on to the FAFSA site and fill out their portion of the form, and it typically takes 3 business days to receive one’s FSA ID after submitting a request.

The new FAFSA calculation will revolve around a student’s SAI, or “Student Aid Index,” which is determined based on the income and assets of a student and any other contributors such as a spouse or parents.  Like the “Expected Family Contribution” (EFC) under the old rules, the SAI will be deducted from a college’s cost of attendance to calculate a student’s financial need.  As mentioned above, however, the SAI deviates from the EFC calculation in several ways, with certain groups of people benefiting from the changes while others are hurt by the changes.

Those hurt by the new SAI calculation:

• Families with multiple children in college.  Unlike the EFC, the SAI does not account for families having more than one child in college at the same time.  While the form asks about other children in college, it does not factor that data into the calculation of a family’s financial need.
• Divorced or separated parents.  Under the old rules, if a student had divorced parents, he or she was required to submit information on assets and income of the parent with whom he or she lived for the majority of the year.  Under the new FAFSA, students must submit information for the parent who provides the most financial support instead.  And if that parent is remarried, the income of the stepparent is included as well.
• Small business owners.  Previously, business owners only had to declare the equity in their business as an asset if the business employed over 100 employees.  Now applicants will have to declare the net worth for businesses of any size as well as family farms.

Those benefiting from the new SAI calculation:

• Families with grandparents helping to pay college expenses.  Under the old rules, if grandparents contributed money to pay for a student’s education, the contribution amount would have to be declared as income that year for FAFSA purposes.  Under the new rules, grandparent contributions to education, along with most other forms of untaxed income, are excluded from the calculation.
• Those with education savings accounts for other students.  Previously, all education savings accounts (e.g. 529 accounts) owned by parents were considered parental assets for financial aid purposes.  Now only education savings accounts for which the student is the beneficiary are included as parental assets on the FAFSA.
• Those receiving untaxed housing and other allowances.  Similarly, military members or clergy receiving food, housing or other allowances excluded from their taxable income no longer have to add those amounts back to their income for the FAFSA calculation.
• Low-income and immigrant families.  Importantly, with the new changes to the FAFSA, significantly more students will be eligible for Pell grants (need-based aid that does not have to be repaid), and the financial aid application will now be available in 11 languages (instead of two), greatly expanding access to federal financial aid for families in which English or Spanish is not the main language.

If you have questions about how the new FAFSA rules impact your eligibility for financial aid and/or whether you should make any financial changes in light of them, please do not hesitate to call or email us, and we would be happy to discuss in more detail.